7 THINGS YOU SHOULD KNOW ABOUT CREDIT

1. WHAT IS THE HIGHEST PERCENTAGE OF CREDIT YOU SHOULD UTILIZE EACH MONTH?

We recommend you use no more than 30% of your available credit monthly. In fact, your credit utilization is one of the 5 factors that determine your FICO credit score.

2. WHAT IS A GOOD WAY TO BUILD CREDIT USING A CREDIT CARD WITH NOT LIMIT (E.G. AMERICAN EXPRESS)?

We suggest you spend roughly 3 times the amount you intend to use to keep the monthly balance around 30% balance. E.g. if you normally spend $1500.00 per month, one month you can charge $5000.00 to create a credit limit, otherwise the credit balance may appear to be maxed out every month. Essentially the highest balance you have charged to the credit card becomes your credit limit.

3. WHAT IS THE IDEAL DEBT-TO-INCOME RATIO?

The ideal debt-to-income is 36% or less of your gross income. This includes all financial obligations including but not limited to: rent, mortgage, car, insurance, utilities, lines of credit (credit cards), and student loans.

4. COSIGNING ON A LOAN DOES NOT AFFECT YOUR CREDIT.

False. Cosigning on a loan affects credit in two ways. 1) The loan amount adds the additional balance borrowed to your debt-to-income ratio. 2) The payment history is being recorded as yours. Therefore, if the borrower is late or misses a payment, it will appear on your credit report as well.

5. WHAT’S THE IDEAL NUMBER OF REVOLVING LINES OF CREDIT YOU SHOULD HAVE (E.G. CREDIT CARDS)?

Our experts recommend 3-credit cards which includes 2-credit cards (e.g. Visa/MasterCard/Amex) and 1-department store (e.g. Macys). We also recommend that you have 2-installment loans, which can be a car loan, student loan, or a mortgage.

6. WHICH CARD OFFERS THE BEST PROTECTION AGAINST A FRAUDULENT TRANSACTION; A CREDIT CARD OR A DEBIT CARD?

Simply put, a credit card offers the best protection because when you make a purchase using a credit card you are spending “borrowed” money therefore if fraud occurs, your cash will not be affected.

7. DO YOU HAVE THE SAME PURCHASE PROTECTION WHEN USING A DEBIT CARD WITH A VISA/MASTERCARD LOGO?

You do not. Our experts bly recommend that you use a credit card for a majority – or all – of your purchases. When fraud is reported on a credit card, the credit card issuer will work on your behalf to dispute the transaction(s) and fight the charges. When you use a debit card, you have to dispute the charges and you have a limited amount of time to report the fraud. And after 60-days, you have no recourse at all. Read more about fraud protection here.